Failure to Work Notice Period – Deduction Not Penalty Clause

In the case of Yizhen Li v First Marine Solutions Ltd & Another, the employer applied a contractual clause stipulating that should the employee fail to either work or give the correct contractual notice, then a sum equivalent to the period of notice that was either not given or worked, will be deducted from their final payment.

Specifically, clause 12 of the contract stated that:

“Either the Company or the Employee may terminate the Employee’s employment hereunder by notice in writing of not less than one month which may be from time to time adjusted… If an Employee leaves, without working the appropriate notice, the Company will deduct a sum equal in value to the salary payable for the shortfall in the period of notice”.

In this particular case, First Marine Solutions Ltd argued that the claimant had failed to work the required notice period after having resigned. Consequently, they deducted one month’s salary.

The Employment Tribunal indeed found that the claimant had not worked her notice. The claimant had argued that the deduction of a full month’s salary operated as a penalty. The ET disagreed, in recognition of the fact that the claimant’s role was of a senior position and that the company may have incurred losses trying to recruit a replacement at short notice. They concluded that rather than serving as a penalty, this was;

“a genuine pre-estimate of the losses that might be incurred if at short notice a senior professional such as a project engineer had to be recruited to fill an important gap.”

The case went to appeal, however the appeal failed along with a related appeal challenging the ET’s decision not to consider documents which may have shown that the employer had began to recruit a replacement before the claimant resigned. These documents were tendered by the employer after the evidence had concluded but before submissions.

Future Impact

At EAT, observations were made about the proper construction of a clause.

“the EAT was not itself satisfied such a clause would usually be intended to operate as both parties here accepted it did in the present case, and did not wish this case to set an unfortunate precedent for later ones.”

Source: http://www.bailii.org/uk/cases/UKEAT/2014/0045_13_0403.html

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